Advancing environmental sustainability in the G-7: The impact of the digital economy, technological innovation, and financial accessibility using panel ARDL approach

Abstract

This study examines the impact of the digital economy, technological innovation, financial accessibility, and urbanization on CO2 emissions in the G-7 region from 1990 to 2019. The analysis employed Cross-Sectional Dependence (CSD) and Slope Homogeneity tests, revealing the presence of CSD issues and heterogeneous slope coefficients. First- and second-generation panel unit root tests indicated no unit root problem within the dataset, with variables showing mixed integration orders. Panel cointegration tests confirmed that the variables are cointegrated over the long run. To assess the short-run and long-run impacts of the explanatory variables on CO2 emissions, the study utilized the Panel Autoregressive Distributed Lag (ARDL) model. The findings indicate that the digital economy significantly reduces CO2 emissions, while economic growth, technological innovation, financial accessibility, and urbanization increase CO2 emissions in the G-7 region. The robustness of the Panel ARDL results was validated using Driscoll-Kraay standard errors, Augmented Mean Group (AMG), and Common Correlated Effects Mean Group (CCEMG) estimations. Additionally, the Dumitrescu-Hurlin causality test revealed a unidirectional causal relationship between the digital economy and CO2 emissions, GDP and CO2 emissions, and CO2 emissions and technological innovation. Furthermore, bidirectional causality was found between financial accessibility and CO2 emissions, as well as between urbanization and CO2 emissions. These findings provide comprehensive insights into the dynamic interactions between economic, technological, and environmental variables in the G-7 region, highlighting the complexity of achieving sustainable development.